By Sumi Somaskanda — Special to The Washington Times - -
Monday, May 26, 2014

BERLIN — The image triggered surprise and dismay in Berlin: Former German leader Gerhard Schroeder celebrating his 70th birthday last month in St. Petersburg with his good friend, Russian President Vladimir Putin, during the worst East-West standoff since the Cold War.

But as the West struggles to forge a united policy on Russia, the incident highlights the deeper, more complex relationship the two countries share and reveals why Europe’s most powerful nation is hesitant to step up pressure on Moscow over its adventures in Ukraine.

“This crisis does put a lot of countries who do have close political, economic and historic ties with Russia in a difficult position,” said Raoul Ruparel, head of economic research at the London-based think tank Open Europe. “And a lot of countries appreciate the difficult position Germany’s in.”

That position is shaped largely by deep-rooted economic bonds. The two countries are close trading partners and vital markets for each other: Russia buys expensive BMWs and Audis, among other goods, and Germany is Russia’s biggest European investor — with German companies pouring in $22 billion last year.

Bilateral trade totaled $104 billion last year, down by 5 percent from 2012 but enough to make Russia Germany’s 11th-biggest trading partner.

While the developments in Ukraine have threatened to upend years of diplomacy, it’s business as usual for Germany’s mighty industry — the backbone of the European Union’s strongest economy.

Siemens AG CEO Joe Kaeser met with Mr. Putin in late March to discuss the engineering and electronics corporation’s business there. Industrial lobbying groups continue to mount pressure on Berlin to soften sanctions against Moscow.

Last week, the Russian-German Chamber of Foreign Trade sent a confidential paper to the government warning of lasting damage if tougher measures are applied, Reuters news agency reported.

“There’s a strong influence from the business side, and politicians react to what business wants,” said Claudia Kemfert, an energy researcher at the German Institute for Economic Research.

The energy connection is the most obvious link, with more than 35 percent of Germany’s gas and oil coming from Russian pipelines. Germany has become an important supplier even to the rest of Europe, shipping Russian gas to its neighbors to the east and west.

Then there are the strong ties to Gazprom, Russia’s state-owned energy giant and a pawn in the Ukraine crisis.

“[In Germany], Gazprom controls the whole chain, from the exploration, transportation, delivery to the German customers and storage — big parts of it,” said Ms. Kemfert. “That’s quite unique in Europe.”

Gazprom’s presence here is growing too. Wintershall Holding GmbH, a subsidiary of German chemicals giant BASF SE, sold a massive gas storage facility in the north of the country to Gazprom in an asset swap at the end of last year. Wintershall announced that it will complete the transaction despite political tensions.

The agreement gives Wintershall access to Russian natural gas fields in Siberia. In return, Gazprom will take control of the largest gas reserves in Western Europe outside of Bremen.

“The final agreement was signed in December 2013,” Wintershall said. “The German economics ministry did not raise any objections. The EU Commission agreed to the acquisition of the gas trading and storage business by Gazprom without any restrictions.”

Dependence on Russian energy is a problem facing all of Europe, analysts say.

“In the short term, particularly on the gas front, there’s little alternative to Russia,” Mr. Ruparel said. “While the oil market is a bit more global and fungible, if you look at the excess supply at the moment, it isn’t huge. If the EU were forced to turn away from an oil exporter like Russia, it would find it hard to replace it.”

While the economic link between Russia and Germany is clear, the political ties are more complex.

Chancellor Angela Merkel’s predecessors worked steadily to build trust with Moscow since the fall of the Berlin Wall in 1989. Those efforts, said Stefan Meister, a senior policy fellow at the European Council on Foreign Relations in Berlin, stemmed from a sense of guilt for World War II and a sense of gratitude after German reunification.

Now, 25 years later, both sides recognize the geopolitical importance of maintaining what they have built.

“Putin thinks in terms of power,” said Mr. Meister. “He recognizes Angela Merkel as the most powerful European leader, and that’s important for him.”

Surveys have shown that a large percentage of the German public does not support sanctioning Russia over its actions in Ukraine: In one poll, nearly half supported diplomacy instead.

Two schools of thought have developed over the past two decades, analysts say. One argues for closer ties with Western allies, and the other — the “Russlandversteher” or “Russia apologists” — feels a sense of duty toward Russia.

“It’s a very popular argument in German intellectual circles,” Mr. Meister said. “Because of our history, we need to engage with Russia, we need to bring Russia into Europe and democratize Russia. This is our responsibility.”

Still, as the crisis in Ukraine drags on, and as Germany and Russia continue to develop in different directions, a gradual shift in policy has occurred.

“All these expectations Germany had of how Russia would develop, how it can influence Russia, have failed,” said Mr. Meister. “The modernization has failed, and the whole idealistic approach has completely failed now with the Ukraine crisis, [in which] Chancellor Merkel has very little influence on Putin. He just does what he wants to do, with or without Germany.”

As for Mr. Schroeder, he is arguing that the Russian president is not “persona non grata” and accuses the German government of being too heavy-handed.

He may not find much support with Ms. Merkel, but he still holds sway over public opinion, Mr. Meister said.

“What’s strange is he’s seen as a person who explains Russia to us, who has ties with Putin and can influence Putin, but at the same time he’s paid by Russia,” he said. “He’s really a lobbyist, but he’s not seen here in the public discourse that way.”